Category: Macro thoughts

The current price spurt of biotechnology leads me to think that something is brewing in the research. Biotech is a sector with tremendous asymmetric information. The market will move before the news makes sense… this story isn’t the mover of course, just another crispr story. But something is happening. I’m watching and waiting, once more on the wrong side of the asymmetrical info…

Over the last five years, the CRISPR gene editing system has revolutionized microbiology and renewed hopes that genetic engineering might eventually become a useful treatment for disease. But time has revealed the technology’s limitations. For one, gene therapy currently requires using a viral shell to serve as the delivery package for the therapeutic genetic material. The CRISPR molecule is simply too large to fit with multiple guide RNAs into the most popular and useful viral packaging system.

The new study from Farzan and colleagues helps solve this problem by letting scientists package multiple guide RNAs.

This advance could be important if gene therapy is to treat diseases such as hepatitis B, Farzan said. After infection, hepatitis B DNA sits in liver cells, slowly directing the production of new viruses, ultimately leading to liver damage, cirrhosis and even cancer. The improved CRISPR-Cpf1 system, with its ability to ‘multiplex,’ could more efficiently digest the viral DNA, before the liver is irrevocably damaged, he said.

“Efficiency is important. If you modify 25 cells in the liver, it is meaningless. But if you modify half the cells in the liver, that is powerful,” Farzan said. “There are other good cases—say muscular dystrophy—where if you can repair the gene in enough muscle cells, you can restore the muscle function.”

Two types of these molecular scissors are now being widely used for gene editing purposes: Cas9 and Cpf1. Farzan said he focused on Cpf1 because it is more precise in mammalian cells. The Cpf1 molecule they studied was sourced from two types of bacteria, Lachnospiraceae bacterium and Acidaminococus sp., whose activity has been previously studied in E. coli. A key property of these molecules is they are able to grab their guide RNAs out of a long string of such RNA; but it was not clear that it would work with RNA produced from mammalian cells. Guocai tested this idea by editing a firefly bioluminescence gene into the cell’s chromosome. The modified CRISPR-Cpf1 system worked as anticipated.

“This means we can use simpler delivery systems for directing the CRISPR effector protein plus guide RNAs,” Farzan said. “It’s going to make the CRISPR process more efficient for a variety of applications.”

Looking forward, Farzan said the Cpf1 protein needs to be more broadly understood so that its utility in delivering gene therapy vectors can be further expanded.

This story is important and illustrates the advantage a slightly more totalitarian society has over a democracy in that it can quickly push innovations rather than waiting for market forces. However this comes at the cost of a more brittle and less resilient civil society. Which depends entirely upon the relative wisdom and judgment of a small number of leaders. Think of it as a experiment on Plato’s idea of the greatest leader being a philosopher with power. Secondarily, after the risk of poor leaders exercising bad judgment, you have the chronic problem of misallocation of capital. This is something that Plato did not think of or understand. But the western philosopher – economist Adam Smith perceived. The market is a much better allocator of capital than any manifestation of central planning. Nevertheless, watching the speed of China pursue any technical innovation is impressive.

China’s central bank is testing a prototype digital currency with mock transactions between it and some of the country’s commercial banks.

Speeches and research papers from officials at the People’s Bank of China show that the bank’s strategy is to introduce the digital currency alongside China’s renminbi. But there is currently no timetable for this, and the bank seems to be proceeding cautiously.

Nonetheless the test is a significant step. It shows that China is seriously exploring the technical, logistical, and economic challenges involved in deploying digital money, something that could ultimately have broad implications for its economy and for the global financial system.

A digital fiat currency—one backed by the central bank and with the same legal status as a banknote—would lower the cost of financial transactions, thereby helping to make financial services more widely available. This could be especially significant in China, where millions of people still lack access to conventional banks. A digital currency should also be cheaper to operate, and ought to reduce fraud and counterfeiting.

Even more significantly, a digital currency would give the Chinese government greater oversight of digital transactions, which are already booming. And by making transactions more traceable, this could also help reduce corruption, which is a key government priority. Such a currency could even offer real-time economic insights, which would be enormously valuable to policymakers. And finally, it might facilitate cross-border transactions, as well as the use of the renminbi outside of China because the currency would be so easy to obtain.

Periodically, the European Commission puts out a new report or paper on how it is going to fix the unfixable mess that the Eurozone continues to wallow in. I say unfixable because all of the proposed reforms refuse to confront the original problem, which, at inception, the monetary union builders considered to be a desirable design feature – a lack of a federal fiscal capacity

The conclusion that anyone who understands these matters would reach is that the differences between the European nations are so great that such a shift towards a true federation is highly unlikely despite the fact that the EMU could function effectively if the capacity was developed.

The other conclusion is that by failing to solve the inherent design problem either by introducing a full federal fiscal capacity or disbanding the monetary union, the European Commission is setting the Eurozone up for the next crisis.

While there is some growth now, after nearly a decade of malaise, the residual damage from the crisis remains. The private sector still has elevated levels of debt, the banking system is far from recovered (particularly in Italy), the property market is still depressed, governments have elevated levels of foreign-currency debt (euros), and the labour market remains depressed.

What that means is that when the next economic downturn comes – and economic cycles repeat – the crisis will be magnified and the mechanisms set in place as emergency measures to deal with the GFC will fail immediately.

Larry Summers offers 5 reasons why he thinks the Fed may be making a mistake. First, the Fed is not credible with the markets at this point. Its dots plots predict four rate increases over the next 18 months compared with the market’s expectation of less than two. The markets do not share the Fed’s view that inflation acceleration is a major risk; indeed they do not believe the Fed will attain its 2 percent inflation target for a long time to come. Second, the Fed proclaims that it has a symmetric commitment to its 2 percent inflation target. After a full decade of sub-target inflation, policy should be set with a view to modestly raise target inflation during a boom with the expectation that inflation will decline during the next recession. A higher inflation target would entail easier policy than is now envisioned. Third, preemptive attacks on inflation, such as preemptive attacks on countries, depend on the ability to judge threats accurately. The truth is we have little ability to judge when inflation will accelerate in a major way. The Phillips curve is at most barely present in data for the past 25 years. Fourth, there is good reason to believe that a given level of rates is much less expansionary than it used to be given the structural forces operating to raise saving propensities and reduce investment propensities. Fifth, the Fed to abandon its connection to price stability, it simply needs to assert that its objective is to assure that inflation averages 2 percent over long periods of time. Then it needs to acknowledge that although inflation is persistent, it is very difficult to forecast and signal that it will focus on inflation and inflation expectations data rather than measures of output and employment in forecasting inflation. With these principles internalized, the Fed would lower its interest-rate forecasts to those of the market and be more credible. It would allow inflation to get closer to target and give employment and output more room to run.

Kyle Bass is a legend. He doesn’t have to be right on China to establish that. But so far the market has weighed Bass… and weighed China… and found Bass to be the light-weight. This is the problem with having strong opinions. They are very expensive! As a small fish, I find its better to have theories that one drills down into, identifying the stress-crack markets that should be an early warning to that theory. Now Bass knows this better than myself. He just possesses a bully-pulpit, which he can use to shape the markets perspective. So far the market is rolling its eyes at him. But the idea that “Bass doesn’t know why he is getting smoked in China” is just stupid. Maybe a good headline… but just stupid.

Sometimes, no matter how right you are, you’re still wrong and you’re still going to lose money.
On Thursday hedge fund manager Kyle Bass of Hayman Capital told Reuters that China’s credit problems are “metastasizing” and that he still expects the yuan to fall 30% against the dollar when it does.
It’s a bet he’s been making since February of last year, and the currency has mocked him for his efforts. After a 2% devaluation in the summer of 2015, the yuan rallied, gaining 2.1% in 2017 alone. Of course, that doesn’t mean that the country’s problems with debt have disappeared. The banking system is indeed fragile.
“What the public narrative is and what they have been doing behind the scenes are two completely different stories,” Bass said in a telephone interview with Reuters. “China has been masterful controlling the public narrative. As a fiduciary, I have no idea how anyone can invest in China.”

Two high-ranking military officials were detained in the ongoing investigation into the attempt on President Nicolas Maduro's life using explosive-laden drones, Venezuela’s leading prosecutor said Tuesday https://t.co/s9xt42LLCX

"The first panacea for a mismanaged nation is inflation, the second is war. Both bring temporary prosperity; both bring permanent ruin. But both are the refuge of political and economic opportunists."
-- Ernest Hemingway